Proact IT Group AB (publ)

Good morning everyone and welcome. I'm Magnus Lönn, CEO of Proact and I'm here to guide you through our Q3 report that we released early this morning. And together I have Nora, our CFO that will guide us through the financial details. And I think we will do like this that I will start with a short introduction on Proact, which we are as a company for you that might not have followed us earlier. And then we have a slightly overview of the market that we are operating in. And then we dig into the quarterly highlights and what we have done since we had last conversations. Nora will guide us through our financial details and then we wrap up with a summary and questions for those to conclude the meeting today. So moving over to Proact. We are a tech company. founded in sweden 30 years ago and we are very super focused on helping our customers to secure their critical data and help them with their infrastructure when it comes to their it environment this is a very sort of specialized area and we are very proud of that we have been working with this for for over 30 years and come the experts that we are today And if you think about this, there is not a single company that are operating today that doesn't have a need of a solid foundation when it comes to critical infrastructure and tech IT infrastructure. And this is exactly what we are working with. As you can see on the picture here, we are located in 12 different countries, mainly in Northern Europe. and we are having around 4 000 customers that we are sort of helping on a daily basis with the competence and skill that we have. We have a turnover around 5 billion Swedish SEK and we have been stock listed since 1999. I'm very glad to be leading around 1200 employees and experts that are really passionate about the things that we are really good at. And as I said in the beginning here, our speciality is data and we are helping our customer protect the data, give advice around the data and also how customer can sort of get value out of the data. And it doesn't really matter where the data is located. Our expertise is to sort of guide them and see how we can help them. And as you can see on the graph here to the right, we are on a fantastic growth journey as a company. Over the last years, we have grown with almost 30% and also our EBITDA is increasing. Roughly half of what we're doing comes from recurring revenue. And this is an area that we focus more and more upon. From an operational standpoint, we are divided into four different business units. And these are also the ones that we are displaying and showing in our report so you can see the performance. The red one here is Nordic and Baltics. That consists of roughly half of the company's revenue. And it's by far our biggest business units. Then we have Central, which consists of Germany and Czech. And then we have West, who is Netherlands and Belgium. And then we have UK as a standalone business unit. This is also where we have located our four different service hubs. uh everything we do our customer can also buy that as a service from us and this service are generated and constructed in our four different hubs that are located one in each business units and we have also worked a lot last year to sort of standardize our offerings that means that we can deliver services across europe and that is one of our strengths to to also create efficiency So this is sort of how we are sort of build and how we operate on a daily basis. So we have four clear revenue streams that make up the result that we are doing. And they are all sort of interlinked and connect. And I will walk you through from left to right here. So first of all, systems. This is where we clearly help our customer giving advice and also helping them with how to design their data solutions. And that means that we are taken responsible and we're also delivering hardware and software to our customers to enable them to create a modern infrastructure. We are working with large and enterprise customer in this segment and we're working also with a sort of the top leading vendors when it comes here. So we are working with NetApp, Dell, Nvidia and Commvault among other partners here. this system business and i was to highlight that because this is super important for you that follow up product is that we are doing quite large business around this and the system business can be sort of quite volatile depending on which side of the quarter it it comes and that means when you compare product quarter quarter it can varies a lot when it comes to both revenue depending on when the system deal has been done. On every sort of system we also provide and offer our customer our own support because we are really the experts in this meaning that if a customer has bought something for us then we are there to help them and provide them with guidance if they need any assistance. this is a very stickiness in our business the support contract are long and they are often three to five years it's recurring revenue we get paid up front and then we sort of spread out the revenue over the years so this is a very good way for us to build long term relationships and connecting our business with our sort of own expertise and competence. And many of the customers that we have have been with us for a very long time, almost like 30 years since we founded some of them. So this is also a sort of testament to our knowledge and that we are really working with closely with our customers. Then everything that we sell, we also can provide as a service, meaning that our customer, they don't need to have the competence their own. They don't need to have the staff. Instead, we are taking care of that. And this is what we call our managed cloud services. An example for that is that we can help our customer with the storage, the compute, network, disaster recovery, backup. So everything that sort of aligns and consists of a modern infrastructure, we can help our customer around that. And of course, nothing of this could have been possible if we don't have super skilled consultants that can help and advise our customer. So all these four business revenue streams really ties together in our business. and of course there are some clear trends cyber security solution i think in my dialogues with customers there is not a single customer that have this on their mind cloud if you go back some years cloud was the sort of the ai as of today and nowadays this has been more and more commoditized and and we at proact are really good at this and we can advise the customer where to put their data And then we have also AI infrastructure. AI is now on top of everyone's mind. And at the end of the day, it all starts with the data. And this is where Proact is super skilled in. So we are seeing more and more demand and also requests from our customers. And Microsoft is also one of the biggest vendor that we are working with. We have a lot of skilled people that are knowing Microsoft and how to help our customer to get value out of Microsoft's products. So this is the sort of the core foundation and drivers for us. Moving over and if I talk a little bit on the market and where we are product are sort of operating. And as you all know, in the digitalization that has happened over the last year, data amount and the amount of data that we as individual and companies are generating is increasing basically exponentially. So if you see it on the graph there, that's some sort of an estimate of the data amount generated. And with the introduction of AI, that data amount will continue to increase even further, because AI needs a lot of data in order to do smart things, and you need to have a large amount of data amounts if you want to train an AI model. So the sort of data that we as individual and companies are generating will continue to grow. And that, of course, also increased the demand of storage. You need to sort of store the data somewhere, and you need to sort of foremost also protect the data, because in the sort of the digitalization of what is happening now is that data has also become the most valuable, precious thing that companies possess. And hence, the cybersecurity issue has also caused a lot of worries and as you can see here the sort of the growth in the cyber security market it's very strong connected with the amount of data that is generated so data has become the most pressureable things And if you think about this, Proact has been working with this for 30 years. And the best protection that you can have as a customer is to sort of take a backup of your data. Because then if something happened, then you can always restore your data. And that is what we are really good at in advising our customer to build a solid and robust and resilient environment so that if something happened, or I would rather say when something happened because this is a very challenging situation all of our customers then you can sort of recover and do that in a good way and of course So this is the sort of environment that we in Proact are working with and that we are helping our customer and I would say that the growth of the data, cyber security and AI is the sort of the continue lead indication and Proact is in the sort of the middle and it's so I feel very confident and very proud that the market and what we're working with makes Proact in a very good position. And also, I just want to highlight this because, I mean, sometimes it could be a little bit abstract what we're doing, but basically this picture can resonate into every company that is available today. Every company needs some sort of data storage, and that is the blue part here. Proact are experts in this. We can help our customer even if it's on-prem or if the customer is in a private cloud or a public cloud. It doesn't really matter. We can be there to help them. And as you see in the yellow part here, as it is right now, AEI is something that every company would like to try an experiment. And in order to do that, you need to have the blue part here in place, because otherwise you can't make any sense of it. And if you are into development, you need to work in a modern way. And the cloud technology and containers is a very efficient way to develop software. This is what Proact has been working with for a long time. We have dedicated people like the company Black Jocks and Konoa, that's part of the Proact family, that are experts in this. And then at the end of the day, as I said in the beginning, cybersecurity, data protection and recovery, that is the key thing that every company and every board member have on top of their agenda. And as you see to the right here, this is to illustrate that we can deliver this as a service, we can deliver this as a technology only, and we can provide our support. So this sort of business model that our customer have, we are very flexible and we can adapt to that. So I think that is also a strength of Proact when we looked into it. And this connects to our four different revenue streams I showed earlier. But now moving into the quarterly highlights. So this morning we released our Q3 report and we ended up in revenue with almost 1.1 billion Swedish SEK. It's almost in line with the year before, slightly below. uh if you recall the first quarter we have i think q3 for us made a really good execution we have a performance issue in central and west foremost but although that we were able to sort of land on this revenue When it comes to the result, we landed on 76 million and that result in an EBITDA margin of around 7%. And this is also in line with last year. But I'm also very glad to announce that we are slightly increasing our recurring revenue. And that is an important measure for us, because it's a focus area that we're working with a lot. Another key highlight for us during the quarter is that we sold our mcs service and and we measure that in the sort of the total contract value which was one of the highest that we have had we ended up in a tcv of almost 250 million swedish sec if we compare that to last year we were around 100 million so i think that was a very good execution of our sales team and the focus that we have put into this Another really proud thing is that we as a company were rewarded Global Partner Innovation Award by NetApp, which is a global company. So we were selected as the partner of the year when it comes to the work we have done on innovation around how to improve cyber security and resilience with help of NetApps technology and as I said in the beginning that is a key thing that every customer are working and thinking about and I would say that being world class in this is a truly testament to the sort of competence that we persist and that we have and the position that we in product have so that's very proud of and I'm glad to share that with every member of the PROACT family. And even more happy is that we announced that we are extending the PROACT family We signed an agreement to acquire Consular, which is a Danish company that are super strong when it comes to data infrastructure and cloud solution in the Nordic market. And this is a really good addition to our Nordic business units. So I'm really glad that we were able to get to this position. And to conclude here, and that's also in the report, you see that a lot of focus during the quarter has also been to execute the sort of cost efficiency that we talked about in the previous quarter. We have come far and we are not at all satisfied with the sort of performance in some of our business units, mainly central and west. but we are on to it and as I said earlier it will take an additional quarters until we see the sort of impact but one step at a time and I think we are sort of slowly in the right direction and so with that I think we summarized the Q3 highlights but Nora Kirja, over to you and guide us through the financial details.

Thank you, Magnus. Hi, everyone. Turning to slide nine. As mentioned, total revenue amounted to 1.08 billion Swedish krona, a decrease of 4.3% compared to the same quarter last year. The decline reflects weaker system sales, albeit strong comparatives in Nordic and Baltics last year, and challenging market conditions in West and Central, partly offset by higher revenue in the UK. Organically, total revenue declined by 4.5%. System sales amounted to 555 million Swedish krona, corresponding to a decrease of 9.8%, with lower volumes across all regions. Organically, system sales declined by 7.9%. Nordic and Baltics were affected by large prior year deals, while software markets impacted Western Central. Service revenue increased by 2.6% to 528 million Swedish krona, supported by strong consulting and cloud services in Nordic and Baltics and higher revenue in UK, partly offset by the weaker sales in Western Central. Organically, service revenue declined marginally by 0.1%. On the next slide. As Magnus mentioned, new cloud contracts were signed at a total value of 248 million Swedish krona with an average contract length of three to five years. And as mentioned before also, we will start delivering these. It normally takes somewhere between three and six months to onboard a customer. These contracts will start generating revenue quite soon. Revenue from cloud services decreased by 1% to 269 million Swedish krona, mainly explained by higher customer turnover in West and Central. Nordic and Baltics and the UK showed positive development, but were unable to fully compensate for the decline. Reoccurring revenue, defined as revenue from cloud and support services amounted to 431 million Swedish kronor, mainly driven by an increase in support services. Annualized recurring revenue amounted to 1.72 billion Swedish kronor. This corresponds to an increase of 1.1% compared with the previous year, also driven by strong growth in support services. Adjusted EBITDA amounted to 76 million Swedish krona, a decrease of 3.9%, mainly explained by lower revenues. The adjusted EBITDA margin remained flat at 7%. Earnings were negatively affected by lower sales volumes in Nordic and Baltics and continued market challenges in Western Central. As Magnus also mentioned, we've taken strong measures to reverse the negative trend. both through initiatives to increase revenue and through the group-wide cost efficiencies to strengthen profitability, as earlier mentioned. Particular focus on Western Central, where the challenges are the greatest. These measures will give effect over time. Further to cash flow and net cash position on this slide. During the third quarter, cash flow amounted to 122 million Swedish krona. of which minus 28 million was from operating activities. Cash flow from investing activities amounted to zero million as a result of a positive effect from adjustments to acquisitions and naturally negative from investments in tangible and intangible assets. Cash flow from financing activities totaled minus 93 million, mainly related to amortization of lease liabilities of minus 29 million and repurchase of own shares of minus 52 million. The net cash reduction for the first nine months of the year was mainly driven by M&A, share repurchases and lease amortization. Operating cash flow was negatively impacted by working capital movements related to timing effects in this quarter and tougher payment terms. Now some details from our business units, starting with Nordic and Baltics on this slide. Revenue in Nordic and Baltics decreased by 4.4% to 541 million Swedish krona, mainly driven by lower system sales compared to a strong quarter last year. Organically revenue decreased by 3.2%. This was partially compensated by solid growth in the services business, both support and cloud services. Adjusted EBITDA decreased by 13% to 56 million Swedish krona as a result of the decline in system sales. The adjusted EBITDA margin decreased to 10.3%, still being well above the group target of 8%. Further to Business Unit UK on this slide. Revenue in the UK increased by 19% to 203 million Swedish kronor, driven by strong performance in both systems and services. Organic revenue growth was 8.4%. BlackYox contributed positively to revenue with 28 million Swedish kronor. Adjusted EBITDA increased to 15.9 million Swedish krona, corresponding to a margin of 7.8%. BlackYox contributed 12 million Swedish krona to adjusted EBITDA, with an exceptionally strong margin of 43%. On the next slide, Business Unit West. Revenue in West decreased by 18.6% to 176 million Swedish kronor, reflecting lower activity in the system sales. Also, the earlier churn in service businesses, as well as resource challenges within consulting services, affect revenue negatively. Adjusted EBITDA amounted to 0.6 million Swedish kronor, corresponding to a margin of 0.3%. As mentioned, targeted measures are underway to reverse the trend, and we are seeing early signs of gradual recovery. Lastly, business unit central on this slide. Revenue in central decreased by 9.5% to 190 million Swedish krona due to a decline in both the system and services business, where new contracts did not fully offset previous customer churn in cloud services. On the positive side, support revenue increased with 2%. Adjusted EBITDA amounted to negative 2.4 million Swedish krona, corresponding to a margin of negative 1.2%. The decline is linked to lower sales and a cost base not yet fully adapted to the current business climate. Also here, targeted measures are underway and we are seeing early indications of improvement. On the next slide, our financial targets. As mentioned, we had an organic decline this quarter, albeit compared to a strong quarter last year. Measured as last 12 months, sales growth is now at minus 2.6%. Hence, we still have a way to go to reaching our target of 5% of organic growth and additional 5% growth to acquisitions. Adjusted EBITDA margin last 12 months was 6.6%. As already mentioned, we have taken action to move back towards the long-term target of 8%. We are in a net debt position at the end of this quarter, being still well below the set leverage level of two times EBITDA. ROCE is at 14.1% for last 12 months, where the decline is mainly attributed to the lower results. This concludes the financial overview of the third quarter. Back to you, Magnus, for some final comments.

Thank you, Nora. To conclude and do the summary, during the quarter, we have been focusing on the cost efficiency programme. We are now also taking the next step because, as you see, we still are not at all satisfied when it comes to the performance in some of our business units. So that will be a key focus area for us ongoing. We are strengthening our profitability in some of the areas. I'm also glad to see that the UK are going in the right step. And I mean, you all know, I mean, it's a little bit uncertain when it comes to sort of geopolitics and things like that, that can change. But I would say that in short, my gut feeling is that when it comes to Europe, we have a good position since a lot of our customer is really looking into how and what they will do in the future and making sure that they connect the data. It's also good to see that we are continuing doing well in the Nordic and Baltics. And that I'm also once again really glad to sort of welcome Consular into the product family. And I just want to highlight that the work that we initiated, it will take some additional time to get it. and i would say that to summary the quarter is that we have done what we said earlier and and execute upon that and that is what we will continue to focus upon in the coming quarter so i'm really looking forward to give you more updates and now i think it's time to open up for some questions daniel please

Yes, there we go.

Thank you very much, Magnus and Nora. A couple of questions. You highlighted the cloud order intake here, 248 million, more than doubling year over year. Any larger deals standing out there or is it only a better broad market picture and demand for cloud services and also geographically what was driving that?

Yeah, we had, as you said, a really good quarter when it comes to our MCL sales. We had some larger deal actually, and that is also really glad in both Germany and Netherlands. And that is, of course, a good strong, because as you have heard me talked about earlier, focus on sales is key. So that is what have happened during the quarter here.

Were there any deals that you would consider to be of kind of one-off character so that we shouldn't extrapolate this level into the coming quarters? Or do you see an underlying better demand situation for these services?

I think... The market challenges when it comes to financially in both Germany and the Netherlands remains a little bit challenging. So I would expect to be a little bit more careful around that. But the key focus for us now is to continue to work and also maybe narrow down our services and also get another grip on the cost situation so that this what you should expect going forward.

Yeah, that's clear. And when we look at cloud revenues, they were down some 1-2% here organically in Q3 due to the recent quarter's cloud order intake. But with this quarter's good order intake, I guess that the outlook for 2026 looks quite good for cloud revenue growth to turn positive. Is that a fair assumption?

Yeah, it is. But you should also take and consider that onboarding some of our larger customers may take a while. And so you should also expect that it will take some time to translate into the annual recurring revenue.

Okay, that's clear. That's fair. And then a question on the Nordics. How do you see that market as a whole developing in terms of demand and growth ahead? Is it a competitive market? Is it getting slightly better or slightly weaker?

I think the market is really competitive. I think in the Nordic market we have a really good position, but we're also quite narrow in what we are doing. But I'm really glad that we, during the quarter here, signed an agreement with Consular, because that will give us a much better position in Denmark, and then we will also sort of continue and expand. But we are for sure seeing the underlying market need is for sure there but you read in the newspaper so there is also cost few focus especially in sweden and and some of our other nordic countries and that of course is a sort of a blocker from investments at some of our customers

Yeah, I understand. In the UK here, it looks like BlackYox is growing nicely in 2025, contributing with more revenues than when you announced the acquisition earlier this year. Is that the main driver in the UK division or do you see a broad-based solid UK market as well?

That's a super good question, Daniel. BlackYox, as you've seen, I'm really impressed about the performance and also as I said earlier, they are really experts in their specific need and that also clearly demonstrates that our customer is really looking for the help and they also appreciate the value that they get out of Black Axe and that is the position that we should be in. Also, this quarter is that we have seen the underlying business in UK, we have seen performance improvement and that is related to the better sales and cost control. So in combination with blackyards and the underlying business, that is a really positive sign. Now we just need to repeat that quarter after quarter and then I will be happy.

Wonderful. And then the final question here on M&A opportunities. You mentioned Consular, that's a NetApp partner in the Nordics. Are there lots of more M&A opportunities within the NetApp partner landscape in the Nordics or UK in particular? How fragmented is this space really?

I would say it varies a lot when it comes to the geographical market. UK, as an example, is a really competitive market. There are some large players there that are quite dominant. But when it comes to M&A, we are extremely picky. For us, it's super important that our M&A fits into our portfolio and so forth. And as you know, we have a clear M&A agenda as well, and we want to grow as part of our strategy. I have been very clear that we should grow in the business units where we have a good home, meaning good performance, because then it's much easier to handle and take care of an M&A. For now, that means UK and the Nordics. And I'm also glad that we're doing this court executed on the Consular.

Yeah, that's clear. That's all for me. Thank you very much.

And then I see we got some questions maybe in the chat here. What is the cause of the decline in Central and Invest's new competitors? That's a good question, Lena. Take with Central, as I start with. Germany, as you all know, are struggling when it comes to finance. That creates a really tough business climate to operate in. uh often when there is tough climate there is a raise to zero when it comes to margin uh proact is is not sort of um uh low margin company meaning that we uh we we we highly pressure the value that we provide our customers so in Germany we have had a lot of customer assurance and that explains the sort of revenue drop also historically we have maybe had too much focus internally on our integration issues when we come to our acquisitions. This we sort of have sorted out and we also changed the way of how we're dealing with acquisitions that we now instead creating a better sales focus and also in Germany we have not been good enough to adapting our cost structure compared to the sort of the churn and things like that and that is something that we have been working with during quarter and as we said now we are looking into it even further. In Netherlands we have had There is a little bit more consultative and when it comes to challenging market, then often the consultancy business is the one that hits the most. And once again, we have not really been good and fast enough to sort of compensate our cost structure. So that is the reason why we are not in the performance as we should be in both central and west. But I and the full management is fully aware of it. And I'm very also proud of the sort of members in our staff that are really committed in working as resolving this. Then I also got the question around the AI boom. Why aren't you growing? That is also a very good question. I think there is a lot of talk around the AI and there is very much boom around it. If you really don't scratch the surface and dig into the numbers, a lot of the investment is made by Microsoft, Amazon and Google themselves. They are building an enormous infrastructure when it comes to AI and things like that. When it comes and translates to private customers and public customers, they are in the sort of the growth journey. And I would say that investment will come over time. But I do not expect that we as a company will see the same growth impact that you can see on some of the sort of when you read the report. So you really need to sort of scratch the surface a little bit to be a little bit more nuanced when it comes to the growth here. The only thing I can say around the AI boom is that all the customer, they are seeing an increased need of data storage. And that is by far our core business. Then I got the question here, how do you foresee a positive increase business in relation to coming to regulation? And that is a super good question. We are working on a daily basis with a lot of customers because many of them are related and working a lot around this. We We can help customer when it comes to services and we can also help them build a resilient infrastructure. So that is what we will see. And then I got the question from Olle Bragborn here. Net finance items amounted to minus 90 million SEK compared to 3.3 million last year. What is the reason for that? Maybe, Nora, that's a question for you, you want to highlight.

Yes, and that is mainly driven by FX effects in the quarter, unfortunately. The Swedish Crown is not working to our advance. There is also one hand raised, Magnus.

Sorry, please, Paul.

Hi, good morning.

Hi, good morning. Yes, I was wondering, so in the UK, beside the Black Yaks acquisition that has been impacting revenue positively, what is driving such a good demand for systems and services in the country compared to other markets?

I mean, we have been, first of all, we have been in place in UK for a very long time. We are sort of well recognized for the competence that we possess. We have long-term customer relationship and we have during the quarter here, oh sorry, the quarter, the last year, we have had a lot of focus on our sales capability and be even better in telling our story here. So I would say that is the sort of main drivers here.

Thank you. Good.

Then I would like to thank you all for attending this morning meeting here. And as I said, we are continuing on our journey and I'm really looking forward to talk to you more in coming quarters. All the best, have a great Continuum Friday and talk to you soon.